WASHINGTON— As the CU Daily reported earlier, the Internal Revenue Service has issued a proposed rule on auto loan interest deduction provisions in HR 1, the budget reconciliation bill passed earlier this year, and also offered some additional clarity in response to questions from credit unions, among others. But while the clarity was welcomed, a new review of the proposal suggests it may place additional burdens on lenders, according to America’s Credit Unions.
HR 1 creates a temporary federal income tax deduction for interest on certain passenger vehicle loans for tax years 2025–2028 and establishes new reporting requirements for credit unions.
The Clarity Provided
America’s Credit Unions said the IRS has responded to requests made earlier this year in a letter, including:
• Providing rules for assignees in indirect lending on how to determine and report required information
• Clarifying refinance treatment by capping deductible interest to the outstanding principal at refinance
• Specifying reporting timing and mechanics, including interest for the year and principal balance snapshots
• Establishing allocation rules separating qualifying vehicle-related amounts from nonqualifying amounts, including negative equity
Ann Petros, vice president of policy engagement and credit union operations with America’s Credit Unions, said there is “some good news and maybe a little bit of bad news” in the proposal.
While the clarifications are positive, Petros said an initial review shows the IRS appears to place the burden on lenders—or “interest recipients”—to determine whether a loan qualifies as a specified passenger vehicle loan and whether interest above $600 must be reported.
Deadlines Provided
“This is discussed in a section on assigned loans and the information assignees will have from the original lender,” Petros said. “Treasury and the IRS determined that assignees would have most of the information needed, but they may not have information on whether the personal-use requirement is met.”
The guidance also outlines key annual filing deadlines:
• Feb. 28 for nonelectronic filing
• March 31 for electronic filing
“They must share the written statement with the borrower on or before Jan. 31 of the year following the calendar year in which the interest was received,” Petros said. “No surprises there, but additional clarification.”
She noted the IRS guidance runs 97 pages and is still under review. America’s Credit Unions also plans to solicit feedback from member credit unions and share that feedback with the IRS.
